State Trading Enterprises in a Differentiated Product Environment: The Case of Global Malting Barley Markets

The lack of transparency in the pricing and operational activities of state trading enterprises (STEs) has
caused WTO members to express concern that certain countries’ STEs might circumvent Uruguay Round
commitments on export subsidies, domestic support, or market access. The purpose of this study is to
examine the market structure of the differentiated world malting barley market in which two STEs (the
Canadian Wheat Board and Australian Barley Board) maintain jointly a very large share of the export
market. In particular, this study focuses on the exclusive procuring and pricing policies used by both STEs
to test if these intra-country mechanisms can generate leadership and shift rent from other exporting
countries. A conceptual and empirical framework is also provided to test if STEs set their initial payments
at optimal levels. Four key results are forthcoming from this research. First, we found strong support that
the global malting barley market operates in a quantity setting oligopolistic structure. Second, both STEs
and other exporting countries were in Cournot competition, and thus held the potential to exercise rentshifting
behavior using their initial payment structures. Third, while some distortionary impacts from the
STE prepayment systems were possible, we did not find evidence that it was a tool either STE employed.
Empirical results from the precommitment stage show that both STEs did not set their initial payments low
enough to maximize their profits. Fourth, It appears that the strong anecdotal and statistical evidence of
product differentiation dampened significantly the desire/ability of malting barley STEs to pursue a rentshifting
objective.